New Delhi: Online grocery firm Grofers is eyeing a three-fold jump in yearly sales on the back of strong demand for its private brands and aggressive pricing owing to a transition to an inventory-led model.

Gurgaon-based Grofers India Pvt. Ltd expects monthly sales to touch Rs80 crore by December, up from Rs65 crore a month currently. The online grocer, which services 26 cities, delivers 15,000 orders daily, with an average basket size of Rs1,300. Grofers transitioned to an inventory-led model from a hyperlocal delivery start-up in February.

“Now because now we own our inventory and private labels, we are able to drive pricing more aggressively... since then (February) we have seen a study uptick in sales," said Albinder Dhindsa, founder and chief executive at Grofers.

According to Dhindsa, the inventory model helped improve service levels and increase repeat buying on the platform. It sees a healthy 80% repeat buying behaviour compared with 60% last year, before the transition.

The company continues to invest in supply chain and launch private label products.

Over the last year, Grofers spent $30 million towards supply chain, technology and warehousing, Dhindsa said, in a bid to close in on larger rival BigBasket and defend its turf from Amazon Now, the grocery delivery arm of Amazon India that is expanding aggressively.

“Most of our focus now is towards managing the growth we are seeing and providing value to our customers through our products. We have been growing 20-25% every month. We are doing Rs65 crore gross monthly sales and trying to add another Rs8-10 crore every month," Dhindsa said in an interview.

Recently, the government allowed Grofers, a company majority-owned by foreign entities, to start retailing food products online and through physical stores.

The approval, which was also given to Amazon India, will allow these firms to set up wholly-owned entities engaged in stocking and retailing food items, including fruits and vegetables.

Dhindsa, however, said he did not see an immediate shake-up in business structures from the regulatory approval. “The reason is that there is still some clarity awaited on the definition of ‘foods’—what items constitute ‘food’... but with FDI (foreign direct investment) allowed in this sector, we hope to see a lot more investment in food supply chain," he said.

The approval does allow Grofers to expand its private label offering. Private label refers to products that are sold under the company’s brand and earn higher margins as compared to goods sold from other vendors in a marketplace model.

Over the last year, the company has launched its own brand of pulses, sugar, cooking oil, snacks, fruits and vegetables and other kitchen commodities. Earlier this month, it also introduced a private label brand in the home furnishing category.

“The idea is to have a lot of these items, and more, available by the Diwali season," Dhindsa said.

In a blogpost in April, Grofers said it carried out a “three-month long research exercise which included user surveys, focus groups, in-person interviews with our customers and a lot of prototyping". The findings led the company to innovate on warehouse management, pricing and assortment and delivery systems.

Since March 2016, when Grofers decided to build these systems ground up, the company has scaled up its warehouse capacity to 600,000 sq. ft (from 100,000 sq. ft in September) over 22 centres in 10 cities.

In November 2015, Grofers raised $120 million from Japan’s SoftBank, a year after Tiger Global Management and Sequoia Capital poured $35 million into the company.

Analysts estimate the size of India’s grocery market at $300 billion to $550 billion, with only a minuscule 1% of sales happening online.

The segment has seen both Grofers and BigBasket burn millions of dollars, while start-ups such as PepperTap and GrocShop shut down due to paucity of funds.

The grocery segment offers wafer-thin margins and hence a company needs to have a strong private label brand and heavy investment to sustain.

Analysts say online grocery may be the next sector to witness consolidation deals, as cash-rich Flipkart, Paytm and Amazon are looking to strengthen their foothold in this segment. According to reports, Paytm, which is scaling its e-commerce business under the new brand Paytm Mall, held talks with both BigBasket and Grofers for a potential takeover.

SoftBank, which may invest in a follow-on round in Grofers, had prompted merger talks between Grofers and BigBasket, Mint reported in April.

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